Relaxing whilst doing Competition Law is not an Oxymoron

Archive for July 2021

NEW PAPER | What is an Abuse of a Dominant Position? Deconstructing the Prohibition and Categorizing Practices

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I have uploaded on SSRN a new paper on the notion of abuse from a comparative perspective (see here). It will be published in the Research Handbook on Abuse of Dominance and Monopolization, jointly edited by Pinar Akman, Or Brook and Konstantinos Stylianou (all based at the University of Leeds) and forthcoming with Elgar next year. I am really grateful to them for the invitation to take part in the project.

The paper seeks to provide an overview of the notion of abuse (broadly conceived) from a comparative perspective. It focuses, in particular, on the EU and US case law and administrative practice.

The first point I make is that the notion of ‘competition on the merits’ is not particularly helpful. Not all potentially abusive strategies are inherently anticompetitive or inherently pro-competitive; most conduct may or may not be caught by the prohibition depending on the specific circumstances of each case. It is not a surprise, against this background, that the evaluation of the economic and legal context has acquired an increasingly relevant role in the case law.

Second, the paper seeks to tease out, systematically, the constituent elements of the notion of abuse. The paper differentiates between practices based, inter alia, on whether they are price-based or not; whether they involve the leveraging or the strengthening of a dominant position; and, as far as leveraging strategies are concerned, whether the relevant markets are horizontally or vertically related.

On the basis of this exercise it is possible to understand the controversies and frictions that have become so frequent in this field. Like practices are not always treated alike by courts and/or authorities. There are also ‘grey areas’ in between the most common categories, as Slovak Telekom has recently shown.

Finally, the piece touches upon potentially abusive practices in digital markets. Intervention against online platforms is remarkable (and more intrusive and far-reaching that traditional competition law enforcement) in that it gets into the design of products and business models. Traditionally, authorities were reluctant to venture into such territory. Not anymore. Just compare and contrast the EU Microsoft saga, which left the firm’s business model untouched and Android, which challenged the core of Google’s monetisation strategy.

Given the paucity of precedents, it is not surprising that questions about the applicable legal test in relation to these practices have proved contentious. Slovak Telekom already suggested an approach to navigate the issue (as explained here, the applicable legal test would hinge on whether, in effect, intervention would force the dominant firm to conclude a contract with third parties with which it has chosen not to deal).

I look forward to your comments (as usual, nothing to disclose).

Written by Pablo Ibanez Colomo

30 July 2021 at 4:10 pm

Posted in Uncategorized

NEW PAPER | EU merger control between law and discretion: when is an impediment to effective competition significant?

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Merger control and mobile phone operators, or the limits of competition law  and sector-specific regulation | Chillin'Competition

A new paper, entitled ‘EU merger control between law and discretion: when is an impediment to effective competition significant?’ is available on SSRN (see here). It is an attempt to make sense of the different approaches to define the substantive test under Regulation 139/2004 and of the choices made by the General Court in its landmark CK Telecoms ruling (the appeal against which is currently pending before the Court of Justice). Your comments on the draft would be most welcome (as usual, nothing to disclose).

The fundamental point the paper makes is that the Commission, in its Guidelines and administrative practice, has interpreted the substantive test in merger control in a way that it would be fulfilled, in principle, pretty much always and everywhere (at least in relation to transactions involving actual or potential competitors). This is the key reason, it is submitted, behind the annulment of the Commission decision in CK Telecoms (if anything, the standard of proof and the role of quantitative evidence come across as side issues that follow from this core question).

Suffice it to take a look at Hutchison 3G UK/Telefonica UK (Three/O2), which is at the origin of the ruling. The crucial passage is to be found in paragraphs 310-314 and 320-326 of the decision, where the Commission advances its interpretation of Article 2 of Regulation 139/2004. According to the authority, the compatibility of horizontal transactions with the internal market is to be evaluated in light of an unstructured set of factors, each of which may or may not be relevant in the context of a particular case.

Thus, the understanding advanced by the Commission in its decision would give it the leeway to decide the exact criteria against which compatibility of a given transaction would be assessed and how the said factors are weighed against one another. What is more, the decision suggested that an ‘important competitive force’ need not stand out from rivals.

If this approach to the substantive test were to be embraced, any undertaking in a given market would qualify as an ‘important competitive force’ (something noted by the General Court itself in CK Telecoms, para 174). For the same reason, virtually any transaction involving actual or potential competitors could be declared to be prima facie incompatible with the internal market. After all, horizontal mergers lead, by definition, to the elimination of a source of competitive pressure.

Two consequences follow from the interpretation of Article 2 of Regulation 139/2004 favoured by the Commission in Three/O2. First, it is an understanding of the substantive test that does not make it possible to draw a clear line between significant and insignificant impediments to effective competition.

Second, an approach that relies on an unstructured set of criteria (the relevance and weighing of which cannot be anticipated by the parties) is not only a source of legal uncertainty (as noted by the General Court in CK Telecoms, para 175) but amounts, for all intents and purposes, to giving de facto discretion to the administrative authority. One should note, in this regard, that the case-by-case evaluation of the likely effects of concentrations is the privileged realm of ‘complex economic assessments’ in relation to which the authority enjoys a margin of appreciation.

It is submitted that an interpretation of Article 2 that gives the Commission such leeway is not obvious to square with Regulation 139/2004 and, more generally, the division of powers between the administrative authority and the EU courts. Pursuant to Article 2 of the Regulation, the substantive test is an issue of law.

In addition, the approach favoured by the Commission would not allow the EU courts to review administrative action in an effective way. If the substantive test were interpreted in a manner that does not impose meaningful boundaries defined ex ante, judicial control would be confined, in practice, to ‘manifest errors of assessment’. Such a reality would not be easy to reconcile with the fact that the interpretation of issues of law is subject to full review.

This is the background against which the CK Telecoms judgment must be understood. The General Court crafted a substantive test that defines a set of clear legal boundaries to administrative action and that makes it possible to draw the line between significant and insignificant impediments to effective competition. These legal boundaries can be found in the Table below.

CK Telecoms is no different from Airtours in the above regard. In the latter, the Commission had also defined the notion of collective dominance in a way that the test would be satisfied in pretty much any oligopolistic market (by focusing on the incentives to collude and neglecting the ability to do so on a sustainable basis, the authority identified a set of conditions that would rarely ever, if at all, fail to be met).

As was true of Airtours, the interpretation of Article 2 embraced in CK Telecoms ensures that the EU courts can perform their core function.

Written by Pablo Ibanez Colomo

8 July 2021 at 4:48 pm

Posted in Uncategorized